US Stock Market Rally: Why Are We Outperforming?

I mentioned this morning that February, so far, is turning into another strong month for U.S. stocks, but not so for the rest of the world.

With the S&P 500 up 1.6 percent, much of the rest of the world is behind. Way behind: Brazil down 2.7 percent. Mexico down 2.6 percent. Germany down 2.3 percent. Spain down 2.4 percent. Hong Kong down 1.2 percent. Canada down 0.8 percent.

What's up? First, there are a lot of cross trends. Europe remains mired in recession. Brazil and Canada are down because their currencies are stronger and are being affected by the currency wars.

But most point to the U.S. economy outperforming. That's true on a relative basis, but even here the data is choppy. Case in point: we saw this morning January capacity utilization numbers above expectations, but lower than December. January industrial production — also out this morning — was down 0.1 percent, well below expectations of a gain of 0.2 percent. Also: Retail sales this week were fair at best.

Regardless: money seems to be favoring U.S. equities — for the moment — and that may grow as these big mergers pick up pace.

You can see this in gold: since the U.S. stock market bottomed in November, gold has been on a downward descent, to six-month lows.

"Hedge funds are picking through the couch to find money to get longer," one trader remarked to me. "Hedgies ARE the new retail and they are INVOLVED."

Hurting gold in particular today is likely remarks from Ben Bernanke, at the G-20 meeting in Russia, where he emphasized that the U.S.economy was recovering. This implies less stimulus, which is negative for gold.